Luxembourg Holding Companies

Holding companies (sociétés de participations financières, or SOPARFI) are fully taxable Luxembourg resident companies that take advantage of
the participation exemption regime. They may benefit from double tax treaties signed by Luxembourg as well as the provisions of the EU
Parent-Subsidiary Directive.

A SOPARFI can be set up as a public company limited by shares (société anonyme), limited company (société à responsabilité limitée) or a
partnership limited by shares (société en commandite par actions, or SCA).

Item TP Country Holdco (Luxembourg) Rate/Base Remarks

no. imposing tax
1 HoldCo Luxembourg CIT Rate for Dividends Exempt Dividends received from resident and nonresident taxable companies
are fully exempt if:
1. The recipient is one of the following:
► A resident capital company or a qualifying entity fully
subject to tax in Luxembourg;
► A Luxembourg permanent establishment (P.E.) of an entity
that is resident in another EU state and is covered by
Article 2 of the EU Parent-Subsidiary Directive;
► A Luxembourg P.E. of a capital company resident in a
state with which Luxembourg has entered into a tax
treaty;
► A Luxembourg P.E. of a capital company or cooperative
company resident in a European Economic Area (EEA)
State other than an EU state.
2. The recipient owns at least 10% of the share capital of the
distributing company or the acquisition cost of the
shareholding is at least EUR1.2M.
3. The recipient holds the minimum participation in the
distributing company for at least 12 months. The 12-month
period does not need to be completed at the time of the
distribution of the dividends if the recipient commits itself to hold
the minimum for the required period.

Additional conditions:
a. The distributing company is a fully taxable resident capital
company;
b. The distributing company is a capital company subject to a tax
comparable to Luxembourg CIT (i.e., subject to a mandatory
 corporate tax at a nominal rate of at least 8.5% from 01 January
2019, levied on a tax base that is determined according to rules
and criteria that are similar to those applicable in Luxembourg;
OR
c. The distributing entity is a resident in another EU member state
and is covered by Article 2 of the EU Parent-Subsidiary
Directive.

The exemption also applies to dividends on participations held

through qualifying fiscally transparent entities.
2 HoldCo Luxembourg CIT Rate for Interest -- --
3 HoldCo Luxembourg Available exemption for Yes Tax credit is available to Luxembourg resident companies for foreign-
foreign income/tax credits source income (derived from a county with which no double tax
treaty is in place) that has been subject to an equivalent tax abroad.

Tax credit also applies to WHT levied in the country of source of the
income in accordance with the provisions of an applicable DTT and
Luxembourg tax law.

The maximum tax credit corresponds to the Luxembourg CIT that

would have been payable on the net foreign-source income but for
the tax credit.
4 EDC PH Luxembourg Dividends WHT 0% / 15% 15% WHT is imposed on payments to resident and nonresidents

0% WHT or full exemption if dividends are paid to qualifying entities

established in EU/ EEA member states, Switzerland or a country with
which Luxembourg has entered into a DTT, or if certain conditions
are met.
5 EDC PH Luxembourg Interest WHT 0% / 20% 20% WHT applies on interest payments made to individual resident
in Luxembourg by the following:
1. Luxembourg paying agents
2. Paying agents established in the EU or in an EEA state other
than an EU state, if a specific form is filed by the recipient by 31
March of the calendar year following the year of receipt of the
interest.

Otherwise, no WHT is imposed on interest payments.

6 EDC PH Luxembourg Royalties WHT 0% --
7 EDC PH Luxembourg Management / Technical -- --
 Services WHT
8 EDC PH Luxembourg Sale of Lux shares -- --

Additional Notes:

Corporate Income Tax Rate 17% (2019 maximum rate);

A municipal business tax and an additional
employment fund contribution (employment fund
surcharge) are also levied on income.
Capital Gains Tax Rate 17%
Branch Tax Rate 17%
Withholding Tax
Dividends 0% - applies to dividends paid to qualifying entities
established in EU/EEA member states, Switzerland, or
a country with which Luxembourg has entered into a
double treaty and certain conditions are met; or
15% - imposed on payments to residents and
nonresidents
Interest 0% or 20%
Royalties 0%
Branch Remittance Tax 0%
Net Operating Losses (Years)
Carryback 0
Carryforward 17 years – for losses incurred from financial years
closing after 31 December 2016; or
No time limitation – applies with respect to losses
incurred between 01 January 1991 and December 31
2016.

Corporate Income Tax

 Resident companies are taxed on their worldwide income.

 Nonresident companies (i.e., those whose registered office and place of management are located outside Luxembourg) are taxed only on their
income derived from Luxembourg sources.

Tax Rates
 Currently range from 15% to 17% (2019 Budget Bill), depending on the income level.
 In addition, a surcharge of 7% is payable to the employment fund.
 A local income tax (municipal business tax) is also levied by the different municipalities. Rates vary depending on the municipality, with an
average rate of 7.5%. For example, Luxembourg City has a municipal business tax of 6.75%.

 Sample 2019 tax calculation for a company in Luxembourg City:

Profit EUR100.00

CIT at 17% (17.00)

Employment fund surcharge at (1.19)
7%
Municipal business tax (6.75)
EUR75.06

Total income taxes EUR24.94

As percentage of profit 24.94%

 Reduced rate of 15% - levied for taxable profits not exceeding EUR175,000;
 The maximum rate (17%) applies to amounts exceeding EUR200,000;
 For taxable profits between EUR175,000 and EUR200,000, an intermediary rate is applied, corresponding to EUR26,250 plus 31% of the
taxable profit exceeding EUR175,000.

Capital gains

 Generally regarded as ordinary business income and are taxed at the standard rates;
 Capital gains on the sale of shares may be exempt from tax if:

 The seller is one of the following:

a. A resident capital company or a qualifying entity fully subject to tax in Luxembourg;
b. A Luxembourg P.E. of an entity that is resident in another EU state and is covered by Article 2 of the EU Parent-Subsidiary Directive;
c. A Luxembourg P.E. of a capital company resident in a state with which Luxembourg has entered into a tax treaty; or
d. A Luxembourg permanent establishment of a capital company or cooperative company resident in EEA state other than an EU state.
 The shares have been held for 12 months or the shareholder commits itself to hold its remaining minimum shareholding in order to fulfill
the minimum shareholding requirement for an uninterrupted period of at least 12months;
 The holding represents at least 10% of the capital of the subsidiary throughout that period, or the acquisition cost is at least EUR6M; and
 The subsidiary of which shares are sold is a resident capital company or other qualifying entity fully subject to tax, a nonresident capital
company fully subject to a tax comparable to Luxembourg CIT or an entity resident in an EU member state that is covered by Article 2 of
the EU Parent-Subsidiary Directive.
Dividends

 GR: 15% of the gross amount of dividends must be withheld at source;

 17.65% of the net dividend must be withheld if the withholding tax is not charged to the recipient, unless a more favorable rate is provided by a
tax treaty.
 No dividend WHT is due if either of the following conditions is met:

 The recipient holds directly, or through a qualifying fiscally transparent entity, for at least 12 months at least 10% of the share capital of the
payer, which must be a fully taxable resident capital company or other qualifying entity, or shares of the payer had an acquisition cost of at
least EUR1.2M, and the recipient satisfies one of the following additional requirements:
a. Fully taxable resident capital company or other qualifying entity or a P.E. of such company or entity;
b. Entity resident in another EU member state and is covered by Article 2 of the Eu Parent-Subsidiary Directive.
c. Capital company resident in Switzerland that is fully subject to tax in Switzerland without the possibility of being exempt;
d. Luxembourg P.E. of an entity that is resident in another EU member state and that is covered by Article 2 of the EU Parent-Subsidiary
Directive;
e. Company resident in a state with which Luxembourg has entered into a tax treaty and is subject to a tax comparable to the
Luxembourg CIT, or it is a Luxembourg P.E. of such a company; or
f. Company resident in an EEA member state and is subject to a tax comparable to the Luxembourg CIT, or it is a Luxembourg P.E. of
such a company; or
 The distributing company is an investment fund, a specialized investment fund (SIF), a private asset management company (SPF), a
reserved alternative investment fund (RAIF), or a venture capital company (SICAR).

Anti-Hybrid Clause and Anti-Abuse Clause Provisions

 Tax exemption for dividends derived from an otherwise qualifying EU subsidiary does not apply to the extent that this income is deductible
by the EU subsidiary;
 Participation exemption for dividends from qualifying EU subsidiaries and the exemption from Luxembourg WHT for income (dividend)
distributions to qualifying EU parent companies of Luxembourg companies does not apply if the income is allocated in the context of an
arrangement or series of arrangements put into place for the purpose of obtaining a tax advantage, thus defeating the object or purpose of the
Parent-Subsidiary Directive (PSD).
 The above clauses apply only within the intra-EU context for income allocated after 31 December 2015.

Foreign tax relief

 Tax credit – available to Luxembourg RCs for foreign-source income (derived from a country with which no DTT is in place) that has been
subject to an equivalent income tax abroad.

 WHT levied in the country of source of income shall also be creditable in accordance with an applicable DTT and Luxembourg tax law.
 The maximum tax credit corresponds to the Luxembourg CIT that would have been payable on the net foreign-source income but for the
tax credit.